Dr. Ray Perryman: “Perspective”

Recent estimates of massive job losses associated with COVID-19 are drawing frequent comparisons to the Great Depression. Some calmer thoughts in the midst of the chaos are warranted.

A number making headlines is that unemployment could jump to 32% in the second quarter, an estimate derived by researchers at the St. Louis Federal Reserve Bank. Using detailed occupational data, they analyzed whether various jobs were essential, could be completed remotely, and were salaried to estimate the “high-risk occupations” which met none of these criteria. They also quantified jobs that are high contact. The average of these approaches suggested that about 47 million people could be laid off during the second quarter, yielding 32% unemployment.

This number aligns closely with our recent estimates, which were derived through detailed analysis by industry and simulations of resulting economic interactions using our large-scale models. We found losses of 11.4 million jobs on an annualized basis (or 45.6 million if concentrated in a single quarter). None of us know what will ultimately happen, but the similarity and enormity of these results suggest that the job market will endure a powerful jolt.

The talk of massive layoffs and 30% unemployment has led to ubiquitous comparisons to the Great Depression. THAT IS JUST WRONG!! Many researchers (including me) have extensively examined the forces behind that calamity. There were massive structural problems at that time, and we knew precious little about proper policy responses. The major harm of the Great Depression was not that joblessness spiked above 30%; it was, rather, that it remained there for almost a decade.

The current situation emanates from a horrific pandemic, but the economic structure is basically sound. The numbers will likely be terrible, but temporary. Once the worst of the virus subsides and social distancing is relaxed, venues will reopen and tens of millions of jobs will quickly be restored. The stimulus package (and perhaps others) and aggressive monetary policy should maintain the fundamentals needed for a rapid recovery.

Prominent psychologist Dan Kahneman received a Nobel Prize for work exploring how our behavior interacts with the economy. He demonstrated that how we present things can greatly affect our attitudes and actions. Focusing on peak job losses and drawing inaccurate parallels to the Great Depression can, in and of itself, be harmful.

To the extent a similar historical period exists (and there are myriad differences), it is the Spanish flu outbreak of 1918-19. The population was one-third of current levels, and 600,000 US lives were lost. We must remember, however, that the period immediately thereafter is known as the “Roaring 20s.” If the economic structure remains intact, we can expeditiously rebound from a health-induced crisis.